Paying tax under self-assessment
Written by Ray Coman
Where possible, tax will be collected on your income before you receive it. This mainly applies to employment, pension and savings income. However this is not always possible, for instance where you have self-employment or rental profits. In this case, you will have to pay your tax to HMRC under self-assessment. This tax due is calculated on your Tax Return.
Self-assessment tax and Class 4 national insurance is due by 31 January after the end of the tax year. However, payments towards the following year's tax liability can also be payable on 31 January in the tax year and 31 July after the end of the tax year. These are payments on account towards next year's tax liability. Payments on account are half of the previous year's liability. When your actual tax has been calculated, any balancing payment is due by the following 31 January, or a repayment is issued if the payments on account are more than the tax owed.
If 80% of your tax liability has been deducted at source, or the liability is less than £1,000, you will not need to make payments on account.
If you expect your current year income to be lower than that of the previous year you can request that your payments on account are reduced accordingly. If your profits are higher than the reduced amount then interest will be charged on the difference.
You will be also charged interest on any underpayments of tax. If the balancing payment is still overdue by 28 February following the tax year an extra 5% surcharge will be imposed, rising to 10% on any amount which is still outstanding on the following 31 July.
If you are taxed through PAYE you can arrange for additional tax to be deducted at source from your pay. Tax of up to £3,000 (or £2,000 for 2010/11 and earlier years) can be deducted in this way, provided you send your tax return online by 31 December following the end of the tax year.
The system of paying tax through self-assessment can be complex particularly where payments on account are involved. With our Tax Return service we aim to:
- Minimise your tax
- Clear up any queries you have regarding your payments
- Remind you well in advance of deadlines the tax you have to pay, so reducing the chance of being charged by HMRC for late payment.
Please contact us and we would be pleased to help.
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The amount payable by 31 January and 31 July next year is 50% each of your tax liability for last tax year (in this case 2022/23.)
If you have finished self-employment and either have no income or your income is taxed at source (e.g. because you have employment earnings), you are probably correct that your tax payable for this year will be much lower than for last tax year. In that case, you can request a reduction in payment on account. If it transpires that your payments have been reduced by too much, HMRC would charge interest on the amount of the underpayment. The rate of interest charged by HMRC is above the base rate.
It will depend on if you have registered for self-assessment and have been issued with notices to file a Tax Return. If you have been issued with notice to file and have not filed on time, you would be liable to late filing penalties. If it transpires you have tax to pay, you would also be liable for late payment penalties.
If you have not registered, then you would be liable for a late notification penalty. Usually, tax is declared through the let property campaign, worldwide disclosure facility on onshore disclosure facility. Once the amount due has been agreed with HMRC you are usually given a certain amount of time to pay the overdue tax. Late payment penalties would only be added to late notification penalties if the payment terms set out by HMRC have not been met.
It is possible to come to a time to pay arrangement with HMRC which can help to mitigate late payment penalties (but not any late payment interest,) That is the reason that it is less costly to stay in correspondence with HMRC if you are late.